Problem 11-25 (Algo) Basic Transfer Pricing [LO11-3] Check m Alpha and Beta are divisions within the same company. The managers of both divisions are evaluated based on their division's return on investment (ROI). Assume the following information relative to the two divisions Case 1 2. $ $ $ 6 Alpha Division: 3 Capacity in units Number of units now being sold to 54,000 284,000 105,000 204,008 outside customers 54,800 284, eee Selling price per unit to outside 78,000 204,000 customers 1013 42 $ 66 $ Variable costs per unit 64 $ 23 5 40 $ 32 Fixed costs per unit (based on capacity) 28 $ 8 $ 23 $ Beta Division: Number of units needed annually 9,200 71,000 22.000 58,000 Purchase price now being paid to $ 935 an outside supplier 395 66 "Before any purchase discount Required: 1. Refer to case 1 shown above Alpha Division can avoid $3 per unit in commissions on any sales to Beta Division a. What is Alpha Division's lowest acceptable transfer price? b. Wratis Beta Division's highest acceptable transfer price? Required: 1. Refer to case 1 shown above Alpha Division can avoid $3 per unit in commissions on any sales to Beta Division a. What is Alpha Division's lowest acceptable transfer price? b. What is Beta Division's highest acceptable transfer price? c. What is the range of acceptable transfer prices (if any) between the two divisions? Will the managers probably agree to a transfer? 2 Refer to case 2 shown above. A study indicates that Alpha Division can avoid $6 per unit in shipping costs on any sales to Beta Division a. What is Alpha Division's lowest acceptable transfer price? b. What is Beta Division's highest acceptable transfer price? C. What is the range of acceptable transfer prices (if any) between the two divisions? Would you expect any disagreement between the two divisional managers over what the exact transfer price should be? d. Assume Alpha Division offers to sell 71,000 units to Beta Division for $38 per unit and that Beta Division refuses this price. What will be the loss in potential profits for the company as a whole? 3. Refer to case 3 shown above. Assume that Beto Division is now receiving an 7% price discount from the outside supplier a. What is Alpha Division's lowest acceptable transfer price? b. What is Beta Division's highest acceptable transfer price? c. What is the range of acceptable transfer prices (if any) between the two divisions? Will the managers probably agree to a transfer? d. Assume Beta Division offers to purchase 22.000 units from Alpha Division of $56. 3 perurut Alpha Donaccipes this price, would you expect its ROI to increase decrease or remain unchanged? Check my work d. Assume Beta Division offers to purchase 22,000 units from Alpha Division at $56 38 per unit. If Alpha Division accepts this price, would you expect its ROI to increase, decrease, or remain unchanged? 4. Refer to case 4 shown above. Assume that Beta Division wants Alpha Division to provide it with 58,000 units of a different product from the one Alpha Division is producing now. The new product would require $29 per unit in variable costs and would require that Alpha Division cut back production of its present product by 29,000 units annually What is Alpha Division's lowest acceptable transfer price? Complete this question by entering your answers in the tabs below. cer Req 1A to 1C Reg 2A to 2D Req 3A to 3D Reg 4 1. Refer to case 1 shown above. Alpha Division can avoid $3 per unit in commissions on any sales to Beta Di a. What is Alpha Division's lowest acceptable transfer price? b. What is Beta Division's highest acceptable transfer price? c. What is the range of acceptable transfer prices (if any) between the two divisions will the managers probably agree to transfer? Identify the lowest and highest acceptable transfer prices Lowest acceptable transfer price Highest acceptable transfer price Next D transfer? prices (if any) between the two divisions? Will the managers Identify the lowest and highest acceptable transfer prices Lowest acceptable transfer price Highest acceptable transfer price Identify the range of acceptable transfer prices (if any) There is not a range of acceptable transfer prices There is a range of acceptable transfer prices as shown below: Transfer price Will the managers agree to the trade? Yes NO Next 2 of 3 Prev 2 of 3 table transfer price Highest acceptable transfer price Identify the range of acceptable transfer prices (if any): There is not a range of acceptable transfer prices. There is a range of acceptable transfer prices as shown below s Transfer price es 5 Will the managers agree to the trade? Yes No Division A's ROI should Increase Decrease Plable transfer price? Complete this question by entering your answers in the tabs below. Req 1A to 1C Req 2A to 2D Req 3A to 3D Req 4 Refer to case 4 shown above. Assume that Beta Division wants Alpha Division to provide it with 58.000 units of a different product from the one Alpha Division is producing now. The new product would require $29 per unit in variable costs and would require that Alpha Division cut back production of its present product by 29,000 units annually. What is Alpha Division's lowest acceptable transfer price? Show less Lowest acceptable transfer price
